Honeycrisp Apples and Drug Prices: A Background on Changes to the Framework of the Bayh-Dole Act’s March-in Provisions

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John Lovett, Senior Manager of Media Research and Data Analytics, Pinkston

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  • The U.S. Department of Commerce’s National Institute for Standards and Technology (NIST) is considering changes to the march-in right components of the Patent and Trademark Law Amendments Act, or Bayh-Dole.

  • While the main focus is on prescription drugs, a reshaping of march-in rights based around cost parameters could have major impacts for any entities with government-involved patents.

  • The changes to march-in rights, if finalized, could have significant effects on industry and consumers alike.

On December 7, 2023, the United States Department of Commerce’s National Institute for Standards and Technology (NIST) announced a call for comments for its draft guidance framework for the march-in pieces of the Patent and Trademark Law Amendments Act, or more commonly known as the Bayh-Dole Act for its cosponsors, Democratic Senator Birch Bayh and Republican Senator Bob Dole. This draft guidance, if finalized in its current form, would give the federal government more leeway in its ability to “march-in” or relicense patents that have come about from receiving federal funding.

While the purpose of these changes is primarily focused on the pharmaceutical industry, there are ramifications beyond simply drug prices, for companies working in all fields with the federal government, universities that receive federal funding, and consumers. With the draft comments request closed in February by the NIST, it is likely that final guidelines will be issued in the near future, impacting all numbers of individuals in American society.

This briefing provides an overview of the Bayh-Dole Act and March-in rights and explains some of the arguments for and against the changes, the ramifications these changes may have within the healthcare industry, and the ramifications broadly on public-private partnerships. If you are involved in public-private partnerships in any way, read on to see how this act may impact you!

What is Bayh-Dole?

Bayh-Dole is the Patent and Trademark Law Amendments Act, passed in 1980, which permits ownership of federally-funded research to contractors. Prior to Bayh-Dole, under some circumstances federally funded research could have fallen to the federal government as owner rather than the contractor. The past regulatory regime led to inventions and innovations being left to wallow due to government mismanagement and lack of usage, with 33,000 patents sitting unused.

Since its passage, the Bayh-Dole Act has led to an avalanche of American innovation in nonprofits and higher education. By allowing contractors to keep ownership of research, new technology has been developed through those innovations, leading to the development of the biotech industry, among other industries. In addition, academic contributions to industry through Bayh-Dole research have led to between $600 billion and $1.9 trillion in contributions to industry growth output, as well as at least 3 new products per day. On the medical front, over 200 drugs and vaccines have been developed through public-private partnerships. In addition, by facilitating innovation through public-private partnerships and expansion of patent usage, the United States is able to remain competitive in an ever-expanding global economy.

What are March-In Rights?

March-in rights are the federal government’s ability to relicense a patent that involves any amount of federal funding, giving them to another party on different terms. They are a provision within Bayh-Dole that encourages use of patents toward development. That all being said, as of 2024 no agency has ever used their march-in rights.

There are four main provisions under Bayh-Dole where a funding agency can exercise march-in rights: if there are not good-faith efforts to commercialize or make practical use of the invention in question, if action is necessary to “alleviate health or safety needs” not being satisfied by patent owner, if public use is not being satisfied by patent owner, and if the patent owner sells or uses the patent without agreement with the federal government.

What are the rule changes being proposed for Bayh-Dole?

Under the proposed changes, the usage of march-in rights under Bayh-Dole would expand, with agencies now able to consider pricing in their considerations on whether to invoke march-in rights. This is a departure from past interpretations and the actions of even the Biden administration, as the National Institutes of Health rejected the march-in consideration usage against Pfizer and Astellas for the prostate cancer drug Xtandi due to the NIH's argument that it would not be an effective way to lower the price of the drug.

Bayh-Dole itself makes no mention of pricing in its consideration of health and safety for march-in rights, and the two co-authors, Senators Birch Bayh and Bob Dole, were explicit in that the march-in rights provision was not intended to be used for pricing, an explicit omission designed to encourage the private sector to engage with public institutions.

Why did the NIST decide to make rule changes related to Bayh-Dole?

Some individuals within the government (including members of Congress) have advocated for the use of march-in rights against specific drugs, in particular Xtandi, due to its pricing differences within the United States versus overseas. The intention then would be that government intervention and rescinding of patent authority would lead to lower prices set by the government.

What would be the broader implications of expanding march-in rights to pricing?

By expanding march-in rights, theoretically any agency, not just health-related ones, could argue that prices are too high and intervene through the revised march-in provisions. By intervening, the government would curb innovation in all fields by stifling private partnerships with public non-profits (including universities), which in turn would lead to fewer collaborations, less innovation, and lagging global competitiveness. The expansion would also potentially lead to the regulatory structure prior to Bayh-Dole, with inventions and ideas sitting on the fence.

Why are these changes important to companies?

Public-private partnerships have led to major innovations in a variety of fields, from pharmaceuticals to electronics to even agriculture. Companies (and nonprofits) rely on government support, and would be looking to profit from their developments. Bayh-Dole allows them to do that, and any changes based on pricing could shape how they look at both innovation and seeking funding from the federal government.

Why are these changes important for universities?

The funding that universities receive from these public-private partnerships go right back into their research programs and centers, allowing for further innovation and the ability to compete for the best researchers in an overall competitive academic research ecosystem. In addition, by making march-in rights more accessible, private enterprise’s desire to work in public-private relationships would be de-emphasized, leading to fewer partnerships between the private sector and universities, and in turn less innovation.

Why are these changes important to consumers?

Innovations due to Bayh-Dole have shaped the world around us. Among some of the more notable developments that have come from public-private partnerships with patent authority include allergy medicine Allegra, high-definition TVs, the mRNA COVID-19 vaccine, Google, and even honeycrisp apples! The world around us has changed dramatically due to the developments that have come from public-private partnerships, and depending on how groups determine costs, the drive for innovation could change.

On the other hand, the argument made by those in favor of changes notes the high prices of drugs under consideration relative to how they are sold in other countries, and that there should be some level of control to balance profit and consumer interest. As advocacy group Public Citizen argued in their comments to the NIST, 3 in 10 consumers do not take their prescribed medicine regularly due to costs. Advocacy groups broadly argue that changes to march-in rights would lead to better outcomes for patients by lowering costs.

What’s next?

With the comments period closed as of February 6, the agency will now consider comments as part of its decision making process moving from draft rules to final rules. Final rules will likely be released in the next few months: for example, the Federal Trade Commission and Department of Justice closed their comments period for their updates to the guidelines over merger enforcement on September 18, 2023, and published the final merger guideline changes on December 18, 3 months later. Groups have already begun to prepare for a potential release, with the U.S. Chamber of Commerce creating a coalition to oppose changes to the march-in rights rules. Regardless of the outcome, any changes the NIST makes to Bayh-Dole march-in rights could have major ramifications on the future of patents and innovation.